New foreclosure plan on tap
FDIC offers plan to systematically modify loans for homeowners most at risk of foreclosure. Agency chief hopes program will spur other banks to take similar measures.
NEW YORK (CNNMoney.com) — One of the country’s top banking regulators said Thursday that the government is working on a plan to do more to help troubled homeowners.
Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., told the Senate Banking Committee that her agency and the Treasury Department are working closely to find ways to prevent avoidable foreclosures. The plan would use the Treasury Secretary’s new authority under the Emergency Economic Stabilization Act to provide guarantees to mortgage lenders.
“Loan guarantees could be used as an incentive for servicers to modify loans,” Bair said. “Specifically the government could establish standards for loan modifications and provide guarantees for loans meeting those standards.”
IndyMac and the FDIC began working together to modify loans after they went under overnight. Their process, as discussed on August 20, 2008, looked like this. I assume a similar model will be used for current process. Full Article about IndyMac loan modifications.
US house prices face long fall to bottom: analysts
2008-10-20 — yahoo.com
“We don’t know yet the impact of the economic turmoil on the housing market and I suspect it will not be positive.”
Despite a US government rescue of mortgage giants Freddie Mac and Fannie Mae and a 700-billion-dollar program to rescue banks, mortgage rates are still rising and will remain high relative to the levels of previous years, analysts say.
ALT-A: The Risk Abatement Disaster is Coming
2008-10-21 — wordpress.com
”As late as the spring of 2007, major national lenders were still aggressively marketing Alt-A products with with ridiculously vacuous underwriting criteria: A borrower could secure a no income/no asset documentation cash-out refinance loan, with a simultaneous second mortgage up to 95% CLTV, on a non-owner occupied investment property, with only a 620 FICO, two months PITI reserves and a debt to income ratio up to 60%. Now everyone responsible for the mounting losses will throw up their hands in utter surprise that the golden child of the short lived post-subprime era was a bad idea too.”
States Collect Less Tax Revenue, Expect More Layoffs
22 States Face Tax Shortfalls, Frugality To Hit State Budgets
The moribund economy is drying up tax revenues more dramatically than expected, forcing 22 states, including California, to confront growing budget gaps. Some states have already eliminated jobs and services — and more cuts are likely.
The new shortfalls — totaling at least $11.2 billion — come just months after numerous states enacted belt-tightening measures while writing their yearly budgets. Officials also adjusted their revenue projections downward to account for the slowing economy. But in many cases, the actual revenue for the first quarter of the fiscal year, which began July 1, has proven to be even lower.
“States have been confronted with bad economic circumstances in the past, but never so many states, all at once,” said William T. Pound, executive director of the National Conference of State Legislatures.
The revenue pools are shrinking for a number of reasons: Rising layoffs are cutting into payroll taxes. The credit crisis and housing slump are affecting taxes levied on real estate deals. Sales taxes are shrinking as shoppers worried about the economy stay home.
Bank Bailout… not helping main street at all
2008-10-17 — denninger.net
John Mack yesterday in a CNBC interview said that the capital deployed by Treasury into the banks was going to rebuild their capital ratios – not be lent out. In other words, they intend to hoard it.
This means, bluntly, that not one nickel of benefit will be seen by Main Street, despite claims by Paulson, Bush and others that this bailout is necessary for “Main Street, not Wall Street.”
S&P Warns on $351.7 Billion of Alt-A RMBS
By: PAUL JACKSON – housingwire.com
October 15, 2008
Standard & Poor’s Ratings Services said Wednesday that it had placed ratings on 5,536 classes from 456 U.S. RBMS transactions backed by Alt-A mortgage collateral issued in 2006 and 2007 on review for likely downgrades.
Perhaps most telling is that the mortgages involved aren’t short-term resets: S&P said that most of the Alt-A transactions now under review are collateralized by fixed and long-reset hybrids (meaning rates are fixed for five or more years from origination dates). In aggregate, the affected classes represent an original par amount of approximately $351.7 billion; that total is $280.1 billion in current balance.
Driving the likely downgrades is yet another update to loss severity projections by the rating agency, which said it now expects average loss severity on affected mortgage deals to be at 40 percent rather than the previous threshold of 25 percent.
“Continued foreclosures, distressed sales, an increase in carrying costs for properties in inventory, costs associated with foreclosures, and further declines in home sales will depress prices further and push loss severities higher than we had previously assumed,” S&P analysts said in a press statement.
What Stability??? Longterm, we are screwed either way…
DOW jumps 900+ points in one day
Dow jumps 936 points and S&P up 104, in the biggest point gains ever. The Dow, S&P and Nasdaq all gain over 11%.
NEW YORK (CNNMoney.com) — Stocks rallied Monday afternoon, with the Dow rallying 976 points during the session, as investors bet that the worst of the credit crisis is over, following a series of global initiatives announced over the last few days.
The Dow Jones industrial average (INDU) ended 936 points higher, after having risen as much as 976 points during the session. The advance was the largest ever during a session on a point basis. The point gain was equal to 11.1%, the best one-day percentage gain since Sept. 1932 and the fifth-best ever.
Bernanke: Economic outlook weaker (Say it aint so Ben)
Bernanke: Economic outlook weaker
Fed chairman says financial crisis will dampen economy well into 2009 and hints at future rate cuts; says recent actions by Fed, Treasury should help economy recover.
In a speech before the National Association of Business Economics in Washington on Tuesday, Bernanke said the threat of inflation has receded recently, while the economy has continued to weaken. This could be interpreted as a sign that the central bank might be preparing to lower its key fed funds rate soon.
“Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased,” he said.
Business loan bailout
Federal Reserve to buy loans crucial to business to unfreeze markets.
NEW YORK (CNNMoney.com) — The Federal Reserve announced a new program to help the battered market for short-term business loans – taking its closest step yet to lending directly to businesses.
The program addresses commercial paper, a form of short-term funding that is crucial to many businesses operations.
Commercial paper is sold by major corporations and most of the nation’s leading financial institutions. They use the proceeds to fund day-to-day business operations. It is bought primarily by money market fund managers and other institutional investors.
Before the current credit crisis, there was nearly $2 trillion of commercial paper outstanding and was mostly issued for short terms – never more than nine months – and thus had to be renewed frequently.
“The Economist” polls American economists on the Presidential election
The Economist’s poll of economists
Examining the candidates
Oct 2nd 2008 | WASHINGTON, DC
From The Economist print edition
In our special report on the election we analyse the two candidates’ economic plans. Here, we ask professional economists to give us their views.
Full Report Here - 20+ Page Analysis
Bailout Bill Passes!
2008-10-03 — ml-implode.com
No updated media stories yet; but just confirmed this live on TV. Our worst fears confirmed — what could have been just an ugly downturn will now probably be a lengthy depression and in many ways, the final nail in the coffin for a sovereign United States. Let’s hope something good comes of this money.
Update: Here’s a news article.
Update 2: The market barely paused on the way down after the bill passage; as I write this the Dow has reversed course over 200 points to the downside.
Update 3: Minyanville has reprinted comments from Mr. Practical from back in March which we think are worth re-reading in light of the latest bailout attempt:
…. when government grows too big and through its hubris believes its bureaucracy knows more than the market, the seeds of eventual deflation are sewn… I’m talking about direct intervention in the supply of credit to “ensure price stability.” That lie is due to the political refusal to allow the market to tighten.
The problem becomes worse when big government aligns itself with big business (the extinction of entrepreneurs) to affect the natural self-correction processes of the market.
Years of debt accumulation aren’t cured by a 5% correction in stocks, as Wall Street would have you believe. A major debt correction — one that the market has been trying to accomplish for years but which has been rejected time and time again by Fed policy — is necessary to correct the huge imbalances that exist. To deny the necessity of this eventuality is, of course, human.
Total US debt is now 3.6 times GDP and continues to grow. But new debt is less and less effective in driving economic growth: More income is going to service that debt and less to creating production, the stuff that generates income.
In 1929, US debt was 2.9 times – the second highest it’s ever been. Despite Mr. Bernanke’s false recollections of Fed actions back then, they created an immense amount of liquidity (credit) trying to cure the stock market crash. The market did rally temporarily as a result, then slowly crashed to deeper lows, since that new credit just went to short-term speculation in stocks. The new money did no real good, because there was already too much capacity, so the credit never went to creating production.
Financial Times: “Derivatives market faces biggest test”
Derivatives market faces biggest test 2008-10-03 — ft.com
The $54,000bn credit derivatives market faces its biggest test in October as billions of dollars worth of contracts on now-defaulted derivatives on Fannie Mae, Freddie Mac, Lehman Brothers and Washington Mutual are settled. It’s notable that the credit derivatives market has been the source of not a sudden implosion, but something of a slow and steady fizzle. It turns out that the very non-standard, and non-exchange-traded properties of derivatives that has been so worrisome actually keeps things from happening too suddenly. So that is a good thing. However, it does not eliminate the ultimate need of most participants to take losses — and it is bad in the sense that it drags the “crisis” on for longer.
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